ACCC: NSW Ports’ Deeds Are Anti-Competitive and Illegal

The Australian Competition and Consumer Commission has instituted proceedings against NSW Ports Operations Hold and its subsidiaries for making agreements that allegedly had an anti-competitive purpose and effect.

The proceedings, initiated in the Federal Court, are related to contracts that the company, and its two units, Port Botany Operations Pty Ltd and Port Kembla Operations Pty, signed with the State of New South Wales.

“We are alleging that making these agreements containing provisions which would effectively compensate Port Kembla and Port Botany if the Port of Newcastle developed a container terminal, is anti-competitive and illegal,” ACCC Chair Rod Sims said.

The NSW Government privatised Port Botany and Port Kembla in May 2013 and the agreements, known as Port Commitment Deeds, were entered into as part of the privatisation process, for a term of 50 years.

The Botany and Kembla Port Commitment Deeds oblige the State of NSW to compensate the operators of Port Botany and Port Kembla if container traffic at the Port of Newcastle is above a minimal specified cap.

The ACCC alleges that entering into each of the Botany and Kembla Port Commitment Deeds was likely to prevent or hinder the development of a container terminal at the Port of Newcastle, and had the purpose, or was likely to have the effect of, substantially lessening competition.

Another 50-year deed, signed in May 2014 when the Port of Newcastle was privatised, requires the Port of Newcastle to reimburse the State of NSW for any compensation paid to operators of Port Botany and Port Kembla under the Botany and Kembla Port Commitment Deeds.

The ACCC alleges that the reimbursement provision in the Port of Newcastle Deed is an anti-competitive consequence of the Botany and Kembla Port Commitment Deeds, and that it makes the development of a container terminal at Newcastle uneconomic.

“The compensation and reimbursement provisions effectively mean that the Port of Newcastle would be financially punished for sending or receiving container cargo above a minimal level if Port Botany and Port Kembla have spare capacity. This makes development of a container terminal at the Port of Newcastle uneconomic,” Sims said.

“We are taking legal action to remove a barrier to competition in an important market, the supply of port services, which has significant implications for the cost of goods across the economy, not just in New South Wales.”

“If a competing container terminal cannot be developed at the Port of Newcastle, NSW Ports will remain the only major supplier of port services for container cargo in NSW for 50 years.”

The ACCC is seeking declarations that the compensation provisions in the 2013 Port Commitment Deeds contravene the Competition and Consumer Act 2010 (CCA), injunctions restraining the operators of Port Botany and Port Kembla from seeking compensation under these provisions, pecuniary penalties and costs.

The CCA only applies to the conduct of state governments in certain limited circumstances. The State of NSW is not currently a party to the ACCC’s proceedings and the ACCC is not seeking orders against the state.

In a response to the ACCC proceedings, the NSW Ports said that it “firmly believes that the agreements, signed with the NSW Government to lease its assets at Port Botany and Port Kembla, operate in the best interests of all stakeholders, the economy and people of NSW.”

“Having paid a consideration of AUD 5.1 billion to the NSW Government in 2013 based on the full contractual terms contained in the agreements, NSW Ports will be vigorously defending the proceedings,” the company concluded.